Last reviewed on 13th September 2023 by Martin Alexander (Mortgage Advisor)
Buying a second property can be an ideal way to utilise the equity you have in your existing home. You can do this with a remortgage and use the capital towards a mortgage deposit for another property. From a financial viewpoint, this is perhaps one of the best reasons to remortgage.
Raising a deposit with a remortgage is suitable for purchasing a buy to let or a second home.
- Can I remortgage to buy a second property?
- How do I remortgage one house to buy another?
- Which type of property can I buy with a remortgage?
- Why do I need equity to remortgage?
- How much can I borrow?
- Will I be able to afford a second property?
- Can I buy another home if I have bad credit?
- How to remortgage a buy to let property to expand a portfolio
- Remortgage FAQs
Can I remortgage to buy a second property?
Although it’s possible, getting a remortgage to buy another property is dependent on meeting a lender’s criteria. As a result, lenders will assess your circumstances to calculate whether or not a remortgage is possible. The biggest factor in a lender’s decision is the amount of equity you have. With enough equity, it’s likely a remortgage would be possible.
How does it work?
An example of how a remortgage would work when buying a second property:
Property value: £400,000
Outstanding mortgage balance: £200,000
Current LTV: 50%
Borrow up to £380,000 (95% loan to value)
Funds to buy another property: £180,000
How do I remortgage one house to buy another?
To remortgage one home to buy another, your assessment will be based on:
- The amount of equity you have – Having a large amount of equity in your home can make remortgaging easier. This is because you’re able to release more capital and can place a larger deposit on another home. As a result, lenders are likely to say yes to applicants who have a sizeable amount of equity in the home they wish to remortgage.
- Your income – As you’re taking on an additional mortgage, lenders need to be sure you’re able to afford the new mortgage. Furthermore, as you’re releasing equity, your existing mortgage is likely to increase. For this reason, you’ll need to provide evidence that your income can repay two mortgages.
- Credit score – Having a good credit score can definitely improve your mortgage chances. If you’ve run into credit problems, you risk being declined. Having a lot of equity in your home can support your application, even with bad credit. Furthermore, there are specific lenders that are suited to credit problems.
- Loan to value – You’ll need to leave at least 5% equity in your home, possibly more. This is why the loan-to-value of your remortgage will have an effect on your assessment. The less equity you release, the easier it is to get a remortgage.
Certain lenders may be more suitable in terms of rates and remortgage fees so it’s worth shopping around. Our advisors can also help you with comparing mortgages.
Which type of property can I buy with a remortgage?
The types of properties you can purchase from a remortgage include:
- Buy to let investment
- Buying a second home
- Let to buy
- Buying a holiday let
- Investing in commercial property
Why do I need equity to remortgage?
You’ll need to assess the equity you have in your existing home before you can apply for a remortgage. To calculate this, you first need to know how much your property is worth.
You can arrange a valuation with an estate agent for a more accurate figure. Lenders will of course carry out their own mortgage survey, but it’s important to know how much equity you have, before applying to remortgage.
Once you know how much your home is worth, just deduct your outstanding mortgage balance to calculate your equity. If you own your home outright, it becomes ‘unencumbered’. You can remortgage a home even if you own it outright, this is called an unencumbered remortgage.
How much equity do I need to buy another house?
If you have no equity, then a remortgage won’t be possible. Some lenders may lend up to 95% LTV (loan to value), subject to other criteria, but the rates on offer are likely to be high.
How much can I borrow?
Although 95% remortgages are possible, lower LTV ratios will allow you more options and better deals. Lenders will also make further assessments, such as your age, credit score and the reason for remortgaging.
If you wish to remortgage to buy another home, then a 95% remortgage may be possible. A remortgage to purchase a buy to let property will only have a maximum LTV of 85%. Properties abroad will be even less at 75%. You can use our remortgage calculator here to work out how much you can borrow.
Will I be able to afford a second property?
By taking on a second mortgage, your payments will increase. Lenders need to be satisfied that you can manage the additional cost of having two mortgages.
Mortgage lenders will typically lend between three and five times your annual income. For a remortgage to buy another property, the chances are you’ll want to borrow as much as possible. Lenders also vary in the income sources they’ll consider when making assessments. Some lenders will consider overtime, whereas other lenders won’t.
The same goes for self-employed borrowers. Some lenders will require accounts for just 12 months, but other lenders require three years as a minimum. When you start to assess all the possibilities involved, it makes sense to use a specialist who is aware of each lender’s criteria. Mortgage advisors can ensure you’re getting the best deal and the maximum mortgage amount possible.
Can I buy another home if I have bad credit?
A remortgage with bad credit is possible. The fact that you’d be using a remortgage to purchase a second property doesn’t make a huge difference. What’s more important to lenders are the types of credit issues you’ve encountered and how recent they were.
Applicants with bad credit generally require higher deposits or additional equity in the home they want to remortgage. That said, it doesn’t mean to say you can’t obtain a 90% remortgage. It simply depends on the severity of your credit issues and how recent they were. Lenders will also assess whether or not your credit problems were rare or if you’ve consistently had financial problems.
Remortgages with poor credit aren’t easy, but there are a number of specialist lenders in the market. High street lenders are more likely to decline you when compared to specialist lenders. Speak to an advisor before applying. This will ensure that only suitable lenders are approached.
Read more: Can I remortgage with bad credit?
How to remortgage a buy to let property to expand a portfolio
Using a remortgage for a buy to let is possible. It’s a common strategy for landlords to leverage an existing portfolio to buy more property. The majority of landlords will have interest-only mortgages. What this means is, that the capital of the property isn’t repaid until the end of the mortgage.
As a result, equity tends to be lower than in residential homes. This is because the majority of homeowners are repaying their mortgage balance, as well as interest on the loan. Lenders typically offer 85% mortgages if you wish to remortgage an investment property. This is calculated by assessing the rental income of the property.
Lenders may ask to see signed copies of tenancy agreements, in addition to bank statements. This is to show evidence of rental income for the property you wish to remortgage.
It’s also possible to remortgage a portfolio, with the aim of buying a second home for you to live in. You can make an enquiry with an advisor to check which type of remortgage will be the best suited.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.